The top ten over-the-counter drugmakers in the USA have seen their profit margins slip an average of 4% since 2001, effectively erasing the gains made in the previous five-year period, according to a newly released study.
The average profit margin for the top ten companies is now just below 20%, down from almost 24% five years ago, according to Kline & Co, and a key reason for this decline is an industry-wide jump in ad spending.
“Drug companies are having to spend more to compete with other brands and private-label products, and they are sacrificing profits in the process,” according to Laura Mahecha, healthcare industry manager for Kline’s research division
Ad spending went up nearly $600 million from 2004 to 2005, and consumer product giant Procter & Gamble was responsible for a good amount of the increase.
“P&G spent a little over $100 million to advertise Prilosec OTC, which was a giant increase over the prior year’s spending of only $47 million,” Mahecha says. “P&G’s strategy was to build brand awareness and loyalty before the private labels hit the market, and they did it with big spending on this one product.”
Packaging costs for drug companies also rose, averaging nearly 7% of net sales in 2005, up from almost 6% in 2001.